Earnings Outlook
Weak US operations may limit Dr Reddy's Oct-Dec consolidated PAT growth
This story was originally published at 15:13 IST on 15 January 2025
Register to read our real-time news.Informist, Wednesday, Jan. 15, 2025
By Narayana Krishna
HYDERABAD - Apart from pricing pressure, lack of meaningful launches and muted sales growth in the US are likely to limit Dr. Reddy's Laboratories Ltd.'s December quarter consolidated net profit growth to a single digit, though the company is expected to post better year-on-year revenue growth.
The Hyderabad-based pharmaceutical major is expected to report 7% year-on-year growth in consolidated net profit to INR 14.7 billion for Oct-Dec, while revenue is seen growing 13% on year to INR 81.6 billion, according to an average of estimates of 13 brokerage houses.
In the year-ago quarter, the company had reported a net profit of INR 13.8 billion on a revenue of INR 72.4 billion.
Sequentially, the company's net profit is seen up 17%, but net sales are seen increasing just 1%. Sequential growth in net profit is mainly on account of increased sales of cancer drug generic Revlimid, while weak US sales is the reason for lower sequential sales growth, analysts said. For the September quarter, Dr. Reddy's Labs had reported a net profit of INR 12.6 billion on a revenue of INR 80.4 billion.
Analysts' estimates for Dr. Reddy's Labs net profit for the latest quarter range from INR 11.9 billion, the lowest by Motilal Oswal Financial Services, to INR 16.5 billion, the highest by Nirmal Bang Equities. The estimates for revenue range from INR 76.3 billion, the lowest by Motilal Oswal, to INR 86.9 billion, the highest by PhillipCapital. The company is scheduled to announce its Oct-Dec earnings on Jan 23.
Most analysts expect US sales, excluding those of the generic Revlimid, to be muted due to lack of new launches and loss of market share in some products. Launched in September 2022, Revlimid has been contributing significantly to the company's revenues and profitability. At least eight companies including Sun Pharmaceutical Industries Ltd., Cipla Ltd., and Aurobindo Pharma Ltd. are competing with their respective version of the drug and Dr. Reddy's is leading with a large market share for the drug.
Kotak Institutional Equities expect Dr. Reddy's US sales, excluding Revlimid, to decline 4% sequentially to $303 million, because of loss of market share in a few molecules. The broking firm sees contribution of Revlimid revenue for the quarter at $145 million against the $130 million reported a quarter ago.
Motilal Oswal expects Dr. Reddy's US sales to be flat on year at $405 million, including that of Revlimid, mainly on account of limited volume offtake in some of the products. Axis Securities expects the company's December quarter US sales at $310 million, while generic Revlimid is expected to add $140 million.
Axis Securities said Dr. Reddy's US sales for December quarter will be on the lower side sequentially due to rise in price erosion.
Analysts are positive on Dr. Reddy's sales growth in India led by sales from Sanofi's vaccine portfolio and integration of the acquired business of Nicotinell. While PhillipsCapital sees Dr. Reddy's India sales for the quarter growing 23%, Nuvama Wealth sees it growing 19%.
Kotak Institutional Equities expects the company to report 19% on year growth in sales in Europe aided by the Nicotinell portfolio, while sales in Russia are seen up 14% on year led by seasonal demand. Analysts are also positive on the company's sales in the rest of the world, mainly led by Brazil and China.
While Kotak Institutional Equities expects Dr. Reddy's December quarter earnings before interest, tax, depreciation and amortisation or EBITDA margin to improve by 90 basis points on year to 27.9%, PhillipCapital sees 130 bps on year contraction to 28% due to higher spending on research and development and costs related to integration of acquired business. Analysts estimate Dr. Reddy's Oct-Dec EBITDA margin at 26.8-28.3%. The average of estimates of 12 brokerages available for Dr. Reddy's December quarter EBITDA is INR 22.8 billion.
When the company announces its earnings on Jan. 23, market participants will be keen about the management's commentary on US business growth, future contribution from generic Revlimid, launch schedule of Rituximab biosimilar in Europe, and the progress on GLP-1 products development.
Following are the Oct-Dec earnings estimates for Dr. Reddy's Laboratories based on reports from 13 brokerage firms in the descending order of net profit:
|
Brokerage name |
Net Sales |
Net Profit |
EBITDA |
|
-------(In INR million)------- |
|||
|
Nirmal Bang Equities Pvt Ltd |
81,527.00 |
16,519.00 |
22,828.00 |
|
PhillipCapital (India) Pvt Ltd |
86,926.00 |
15,954.00 |
24,361.00 |
|
Emkay Global Financial Services Ltd |
80,553.00 |
15,598.00 |
23,299.00 |
|
Kotak Institutional Equities |
81,470.00 |
15,358.00 |
22,764.00 |
|
Systematix Shares and Stocks (India) Ltd |
85,384.00 |
15,076.00 |
23,966.00 |
|
Prabhudas Lilladher Pvt Ltd |
80,262.00 |
14,846.00 |
22,678.00 |
|
Nuvama Wealth Management Ltd |
84,548.00 |
14,729.00 |
23,222.00 |
|
Axis Securities Ltd |
82,770.00 |
14,600.00 |
23,030.00 |
|
Sharekhan Ltd |
77,800.00 |
14,500.00 |
---- |
|
KR Choksey Research |
81,681.00 |
14,290.00 |
22,040.00 |
|
HDFC Securities Ltd |
83,070.00 |
14,223.00 |
22,678.00 |
|
JM Financial Institutional Securities Pvt Ltd |
78,117.00 |
13,875.00 |
21,767.00 |
|
Motilal Oswal Financial Services Ltd |
76,270.00 |
11,908.00 |
20,440.00 |
|
Average |
81,567.54 |
14,728.92 |
22,756.08 |
At 1504 IST on Wednesday, shares of Dr. Reddy's Labs traded at INR 1,339.50 on the National Stock Exchange, up 0.2% from the previous close. End
US$1 = INR 86.41
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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